Use Windows backup utility to backup System State to local disk.
Tell us what the result is.

Split your backup into multiple data streams (select 'allow multiple data streams' in policy attributes.
This way backup of other drive letters on this server will (should?) go through. Please only make this change before full backup is due to prevent Incr backup from running as Full.

Supporting Storage Foundation and VCS on Unix and Windows as well as NetBackup on Unix and WindowsHandy NBU Links